SEC Form 10-Q filed by Inspired Entertainment Inc.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
ACT OF 1934
For the quarterly period ended
OR
ACT OF 1934
For the transition period _______________
Commission File Number:
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification Number) |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area
code:
Indicate by check mark whether the registrant (1)
has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Indicate by check mark whether the registrant has
submitted electronically every Interactive Date File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of
this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | ||
| Non-accelerated filer ☐ | Smaller reporting company | |
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a
shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
No
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| The |
As of May 5, 2025, there were shares of the Company’s common stock issued and outstanding.
TABLE OF CONTENTS
| PART I. | FINANCIAL INFORMATION | 1 |
| ITEM 1. | FINANCIAL STATEMENTS (Unaudited) | 1 |
| Condensed Consolidated Balance Sheets | 1 | |
| Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income | 2 | |
| Condensed Consolidated Statement of Stockholders’ Deficit | 3 | |
| Condensed Consolidated Statements of Cash Flows | 5 | |
| Notes to Condensed Consolidated Financial Statements | 6 | |
| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 14 |
| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 35 |
| ITEM 4. | CONTROLS AND PROCEDURES | 35 |
| PART II. | OTHER INFORMATION | 36 |
| ITEM 1. | LEGAL PROCEEDINGS | 36 |
| ITEM 1A. | RISK FACTORS | 36 |
| ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS | 36 |
| ITEM 3. | DEFAULTS UPON SENIOR SECURITIES | 36 |
| ITEM 4. | MINE SAFETY DISCLOSURES | 36 |
| ITEM 5. | OTHER INFORMATION | 36 |
| ITEM 6. | EXHIBITS | 36 |
| SIGNATURES | 37 | |
| i |
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
References in this report to “we,” “us,” “our,” the “Company” and “Inspired” refer to Inspired Entertainment, Inc. and its subsidiaries unless the context suggests otherwise.
Certain statements and other information set forth in this report, including in Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere herein, may relate to future events and expectations, and as such constitute “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 27A of the Securities Act of 1933, as amended (the “Securities Act”). Our forward-looking statements include, but are not limited to, statements regarding our business strategy, plans and objectives and our expected or contemplated future operations, results, financial condition, beliefs and intentions. In addition, any statements that refer to projections, forecasts or other characterizations or predictions of future events or circumstances, including any underlying assumptions on which such statements are expressly or implicitly based, are forward-looking statements. The words “anticipate,” “believe,” “continue,” “can,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “scheduled,” “seek,” “should,” “would” and similar expressions, among others, and negatives expressions including such words, may identify forward-looking statements.
Our forward-looking statements reflect our current expectations about our future results, performance, liquidity, financial condition, prospects and opportunities, and are based upon information currently available to us, our interpretation of what we believe to be significant factors affecting our business and many assumptions regarding future events. Actual results, performance, liquidity, financial condition, prospects and opportunities could differ materially from those expressed in, or implied by, our forward-looking statements. This could occur as a result of various risks and uncertainties, including the following:
| ● | government regulation of our industries; | |
| ● | our ability to compete effectively in our industries; | |
| ● | the effect of evolving technology on our business; | |
| ● | our ability to renew long-term contracts and retain customers, and secure new contracts and customers; | |
| ● | our ability to maintain relationships with suppliers; | |
| ● | our ability to protect our intellectual property; | |
| ● | our ability to protect our business against cybersecurity threats; | |
| ● | our ability to successfully grow by acquisition as well as organically; | |
| ● | fluctuations due to seasonality; | |
| ● | our ability to attract and retain key members of our management team; | |
| ● | our need for working capital; | |
| ● | our ability to secure capital for growth and expansion; | |
| ● | changing consumer, technology and other trends in our industries; | |
| ● | our ability to successfully operate across multiple jurisdictions and markets around the world; | |
| ● | changes in local, regional and global economic and political conditions; and | |
| ● | other factors described in the reports and documents we file from time to time with the U.S. Securities and Exchange Commission (the “SEC”). |
In light of these risks and uncertainties, and others discussed in this report, there can be no assurance that any matters covered by our forward-looking statements will develop as predicted, expected or implied. Readers should not place undue reliance on any forward-looking statements. Except as expressly required by the federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason. We advise you to carefully review the reports and documents we file from time to time with the SEC.
| ii |
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INSPIRED ENTERTAINMENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, except share data)
March 31, 2025 | December 31, 2024 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Inventory | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Corporate tax and other current taxes receivable | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Software development costs, net | ||||||||
| Other acquired intangible assets subject to amortization, net | ||||||||
| Goodwill | ||||||||
| Finance lease right of use asset | ||||||||
| Operating lease right of use asset | ||||||||
| Costs of obtaining and fulfilling customer contracts, net | ||||||||
| Deferred tax | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and Stockholders’ Deficit | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Corporate tax and other current taxes payable | ||||||||
| Deferred revenue, current | ||||||||
| Operating lease liabilities | ||||||||
| Current portion of long-term debt | ||||||||
| Current portion of finance lease liabilities | ||||||||
| Other current liabilities | ||||||||
| Total current liabilities | ||||||||
| Long-term debt | ||||||||
| Finance lease liabilities, net of current portion | ||||||||
| Deferred revenue, net of current portion | ||||||||
| Operating lease liabilities | ||||||||
| Other long-term liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Stockholders’ deficit | ||||||||
| Preferred stock; $ par value; shares authorized, shares issued and outstanding at March 31, 2025 and December 31, 2024, respectively. | ||||||||
| Common stock; $ par value; shares authorized; shares and shares issued and outstanding at March 31, 2025 and December 31, 2024, respectively | ||||||||
| Additional paid in capital | ||||||||
| Accumulated other comprehensive income | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ deficit | ( | ) | ( | ) | ||||
| Total liabilities and stockholders’ deficit | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 1 |
INSPIRED ENTERTAINMENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(in millions, except share and per share data)
(Unaudited)
| Three Months Ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| Revenue: | ||||||||
| Service | $ | $ | ||||||
| Product sales | ||||||||
| Total revenue | ||||||||
| Cost of sales: | ||||||||
| Cost of service (1) | ( | ) | ( | ) | ||||
| Cost of product sales (1) | ( | ) | ( | ) | ||||
| Selling, general and administrative expenses | ( | ) | ( | ) | ||||
| Depreciation and amortization | ( | ) | ( | ) | ||||
| Net operating income (loss) | ( | ) | ||||||
| Other expense | ||||||||
| Interest expense, net | ( | ) | ( | ) | ||||
| Other finance income | ||||||||
| Total other expense, net | ( | ) | ( | ) | ||||
| Loss before income taxes | ( | ) | ( | ) | ||||
| Income tax benefit | ||||||||
| Net loss | ( | ) | ( | ) | ||||
| Other comprehensive (loss) income: | ||||||||
| Foreign currency translation (loss) gain | ( | ) | ||||||
| Reclassification of loss on pension plan to comprehensive income | ||||||||
| Other comprehensive (loss) income | ( | ) | ||||||
| Comprehensive loss | $ | ( | ) | $ | ( | ) | ||
| Net loss per common share – basic and diluted | $ | $ | ) | |||||
| Weighted average number of shares outstanding during the period – basic and diluted | ||||||||
| Supplemental disclosure of stock-based compensation expense | ||||||||
| Stock-based compensation included in: | ||||||||
| Selling, general and administrative expenses | $ | ( | ) | $ | ( | ) | ||
| (1) |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 2 |
INSPIRED ENTERTAINMENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
THREE MONTHS ENDED MARCH 31, 2025
(in millions, except share data)
(Unaudited)
| Common stock | Additional paid in | Accumulated other comprehensive | Accumulated | Total stockholders’
| ||||||||||||||||||||
| Shares | Amount | income | capital | deficit | deficit | |||||||||||||||||||
| Balance as of December 31, 2024 | ( | ) | ( | ) | ||||||||||||||||||||
| Foreign currency translation adjustments | — | ( | ) | ( | ) | |||||||||||||||||||
| Reclassification of loss on pension plan to comprehensive income | — | |||||||||||||||||||||||
| Issuances under stock plans | ||||||||||||||||||||||||
| Stock-based compensation expense | — | |||||||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||||||
| Balance as of March 31, 2025 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 3 |
INSPIRED ENTERTAINMENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
THREE MONTHS ENDED MARCH 31, 2024
(in millions, except share data)
(Unaudited)
| Common stock | Additional paid in | Accumulated other comprehensive | Accumulated | Total stockholders’ | ||||||||||||||||||||
| Shares | Amount | capital | income | deficit | deficit | |||||||||||||||||||
| Balance as of December 31, 2023 | ( | ) | ( | ) | ||||||||||||||||||||
| Foreign currency translation adjustments | — | |||||||||||||||||||||||
| Reclassification of loss on pension plan to comprehensive income | — | |||||||||||||||||||||||
| Issuances under stock plans | ( | ) | ( | ) | ||||||||||||||||||||
| Stock-based compensation expense | — | |||||||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||||||
| Balance as of March 31, 2024 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 4 |
INSPIRED ENTERTAINMENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(Unaudited)
| Three Months Ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Amortization of finance lease right of use asset | ||||||||
| Amortization of operating lease right of use asset | ||||||||
| Stock-based compensation expense | ||||||||
| Amortization of deferred financing fees relating to senior debt | ||||||||
| Deferred tax | ( | ) | ||||||
| Changes in assets and liabilities: | ||||||||
| Accounts receivable | ||||||||
| Inventory | ( | ) | ||||||
| Prepaid expenses and other assets | ( | ) | ||||||
| Corporate tax and other current taxes payable | ( | ) | ( | ) | ||||
| Accounts payable and accrued expenses | ( | ) | ||||||
| Deferred revenues and customer prepayment | ||||||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Pension contributions | ( | ) | ( | ) | ||||
| Other long-term liabilities | ( | ) | ||||||
| Net cash provided by operating activities | ||||||||
| Cash flows from investing activities: | ||||||||
| Purchases of property and equipment | ( | ) | ( | ) | ||||
| Purchases of capital software and internally developed costs | ( | ) | ( | ) | ||||
| Contract cost expense | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Repayments of finance leases | ( | ) | ( | ) | ||||
| Net cash used in financing activities | ( | ) | ( | ) | ||||
| Effect of exchange rate changes on cash | ( | ) | ||||||
| Net increase (decrease) in cash | ( | ) | ||||||
| Cash, beginning of period | ||||||||
| Cash, end of period | $ | $ | ||||||
| Supplemental cash flow disclosures | ||||||||
| Cash paid during the period for interest | $ | $ | ||||||
| Cash paid during the period for income taxes | $ | $ | ||||||
| Cash paid during the period for operating leases | $ | $ | ||||||
| Supplemental disclosure of noncash investing and financing activities | ||||||||
| Additional paid in capital from net settlement of RSUs | $ | $ | ( | ) | ||||
| Lease liabilities arising from obtaining finance lease right of use assets | $ | ( | ) | $ | ||||
| Lease liabilities arising from obtaining operating lease right of use assets | $ | $ | ( | ) | ||||
| Right of use property and equipment acquired through finance lease | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 5 |
1. Nature of Operations, Management’s Plans and Summary of Significant Accounting Policies
Company Description and Nature of Operations
We are a global gaming technology company, supplying content, platform, gaming terminals and other products and services to online and land-based regulated lottery, betting and gaming operators worldwide through a broad range of distribution channels, predominantly on a business-to-business basis. We provide end-to-end digital gaming solutions (i) on our own proprietary and secure network, which accommodates a wide range of devices, including land-based gaming machine terminals, mobile devices and online computer applications and (ii) through third party networks. Our content and other products can be found through the consumer-facing portals of our interactive customers and, through our land-based customers, in licensed betting offices, adult gaming centers, pubs, bingo halls, airports, motorway service areas and leisure parks.
Management Liquidity Plans
As of March 31, 2025, the
Company’s cash on hand was $
Historically, the Company has generally had positive
cash flows from operating activities and has relied on a combination of cash flows provided by operations and the incurrence of debt and/or
the refinancing of existing debt to fund its obligations. Cash flows provided by operations amounted to $
Management currently believes that the Company’s cash balances on hand, cash flows expected to be generated from operations, ability to control and defer capital projects and amounts available from the Company’s external borrowings will be sufficient to fund the Company’s net cash requirements through May 2026.
Basis of Presentation
The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and pursuant to the instructions to Form 10-Q and Article 8 of Regulation S-X of the United States Securities and Exchange Commission (“SEC”). Certain information or footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a comprehensive presentation of financial position, results of operations, or cash flows. It is management’s opinion, however, that the accompanying unaudited interim condensed consolidated financial statements include all adjustments, consisting of a normal recurring nature, which are necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented.
The accompanying unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and notes thereto for the years ended December 31, 2024 and 2023. The financial information as of December 31, 2024 is derived from the audited consolidated financial statements presented in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024 filed with the SEC on March 26, 2025. The financial information for the three months ended March 31, 2024 is derived from the unaudited consolidated financial statements presented in the Company’s Quarterly Report on Form 10-Q for the three months ended March 31, 2024 filed with the SEC on May 10, 2024, as revised (see note 19 to these financial statements for details of the revision). The interim results for the three months ended March 31, 2025 are not necessarily indicative of the results to be expected for the year ending December 31, 2025 or for any future interim periods.
| 6 |
2. Allowance for Credit Losses
Changes in the allowance for credit losses are as follows:
March 31, 2025 | December 31, 2024 | |||||||
| (in millions) | ||||||||
| Beginning balance | $ | ( | ) | $ | ( | ) | ||
| Additional allowance for credit losses | ( | ) | ||||||
| Recoveries | ||||||||
| Write offs | ||||||||
| Foreign currency translation adjustments | ||||||||
| Ending balance | $ | ( | ) | $ | ( | ) | ||
3. Inventory
Inventory consists of the following:
| March 31, 2025 | December 31, 2024 | |||||||
| (in millions) | ||||||||
| Component parts | $ | $ | ||||||
| Work in progress | ||||||||
| Finished goods | ||||||||
| $ | $ | |||||||
Component parts include parts for gaming terminals. Our finished goods inventory primarily consists of gaming terminals which are ready for sale.
4. Prepaid Expenses and Other Assets
Prepaid expenses and other assets consist of the following:
March 31, 2025 | December 31, 2024 | |||||||
| (in millions) | ||||||||
| Prepaid expenses and other assets | $ | $ | ||||||
| Unbilled accounts receivable | ||||||||
| $ | $ | |||||||
5. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consist of the following:
| March 31, 2025 | December 31, 2024 | |||||||
| (in millions) | ||||||||
| Accounts payable | $ | $ | ||||||
| Interest payable | ||||||||
| Payroll and related costs | ||||||||
| Cost of sales including inventory | ||||||||
| Other creditors | ||||||||
| $ | $ | |||||||
6. Contract Related Disclosures
The following table summarizes contract related balances:
Accounts Receivable | Unbilled Accounts Receivable | Right to recover asset | Deferred Income | Customer Prepayments and Deposits | |||||||||||||||||
| (in millions) | |||||||||||||||||||||
| At March 31, 2025 | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| At December 31, 2024 | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
Revenue recognized that was included in the deferred
income balance at the beginning of the period amounted to $
For the periods ended March 31, 2025 and 2024 respectively, there was no significant amounts of revenue recognized as a result of changes in contract transaction price related to performance obligations that were satisfied in the respective prior periods.
Transaction Price Allocated to Remaining Performance Obligations
At March 31, 2025, the transaction price allocated
to unsatisfied performance obligations for contracts expected to be greater than one year, or performance obligations for which we do
not have a right to consideration from the customer in the amount that corresponds to the value to the customer for our performance completed
to date, variable consideration which is not accounted for in accordance with the sales-based or usage-based royalties guidance, or contracts
which are not wholly unperformed, is approximately $
7. Long Term Debt
Senior Secured Notes
Long-term
debt consists of £
Under our debt facilities in place as of March 31, 2025, we were not subject to covenant testing on our senior secured notes (the “Senior Secured Notes”). We are, however, subject to covenant testing at the level of Inspired Entertainment Inc., the ultimate holding company, on our Revolving Credit Facility Agreement (the “RCF Agreement”) which required the Company to maintain a maximum consolidated senior secured net leverage ratio of 6.0x on March 31, 2022, stepping down to 5.75x on March 31, 2023 and 5.50x from March 31, 2024 and thereafter (the “RCF Financial Covenant”). The RCF Financial Covenant is calculated as the ratio of consolidated senior secured net debt to consolidated pro forma EBITDA (defined as net loss excluding depreciation and amortization, interest expense, interest income and income tax expense) for the 12-month period preceding the relevant quarterly testing date and is tested quarterly on a rolling basis, subject to the Initial Facility (as defined in the RCF Agreement) being drawn on the relevant test date. The RCF Financial Covenant does not include a minimum interest coverage ratio or other financial covenants. Covenant testing at March 31, 2025 showed covenant compliance with a net leverage of 2.9x.
The Indenture governing the Senior Secured Notes contains covenants and certain reporting requirements including the requirement to provide the lender, within 60 days after the close of the quarter, unaudited quarterly financial statements with footnote disclosures.
There were no covenant violations in the periods ended March 31, 2025 or March 31, 2024.
| 7 |
| Number of Shares | ||||
| Unvested Outstanding at January 1, 2025 | ||||
| Granted (1) | ||||
| Forfeited | ( | ) | ||
| Vested | ( | ) | ||
| Unvested Outstanding at March 31, 2025 | ||||
| (1) |
The Company issued a total of shares during the three months ended March 31, 2025, in connection with the Company’s equity-based plans, which included an aggregate of shares issued in connection with the net settlement of RSUs that vested during the prior year (on December 31, 2024) and an aggregate of shares subject to awards that vested between 2020 and 2023.
9. Accumulated Other Comprehensive Loss (Income)
The accumulated balances for each classification of comprehensive loss (income) are presented below:
Foreign Currency Translation Adjustments | Unrecognized Pension Benefit Costs | Accumulated Other Comprehensive (Income) | ||||||||||
| (in millions) | ||||||||||||
| Balance at January 1, 2025 | $ | ( | ) | $ | $ | ( | ) | |||||
| Change during the period | ( | ) | ||||||||||
| Balance at March 31, 2025 | $ | ( | ) | $ | $ | ( | ) | |||||
Foreign Currency Translation Adjustments | Unrecognized Pension Benefit Costs | Accumulated Other Comprehensive (Income) | ||||||||||
| (in millions) | ||||||||||||
| Balance at January 1, 2024 | $ | ( | ) | $ | $ | ( | ) | |||||
| Change during the period | ( | ) | ( | ) | ( | ) | ||||||
| Balance at March 31, 2024 | $ | ( | ) | $ | $ | ( | ) | |||||
| 8 |
Basic income/loss per share (“EPS”) is computed by dividing net income/loss attributable to common stockholders by the weighted-average number of common shares outstanding during the period, excluding the effects of any potentially dilutive securities. Diluted EPS gives effect to all dilutive potential shares of common stock outstanding during the period, including stock options and RSUs, unless the inclusion would be anti-dilutive.
| Three Months Ended March 31, | |||||||||
| 2025 | 2024 | ||||||||
| RSUs | $ | $ | |||||||
There were no reconciling items for the three months ended March 31, 2025 or March 31, 2024.
The calculation of Basic EPS includes the effects of and shares for the three months ended March 31, 2025 and 2024, respectively, with respect to RSU awards that have vested but have not yet been issued.
11. Other Finance Income (Expense)
Other finance income (expense) consisted of the following:
| Three Months Ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| (in millions) | ||||||||
| Pension interest cost | $ | ( | ) | $ | ( | ) | ||
| Expected return on pension plan assets | ||||||||
| $ | $ | |||||||
12. Income Taxes
The effective income tax rate for the three months
ended March 31, 2025 and 2024 was
The effective tax rate reported in any given year will continue to be influenced by a variety of factors, including the level of pre-tax income or loss, the income mix between jurisdictions, and any discrete items that may occur.
In the fourth quarter of 2024, the Company determined that, due to positive income generation in the United Kingdom in recent years leading to a cumulative income position, and based on forecasted future taxable income, while considering expected permanent and temporary timing tax differences, a significant portion of the valuation allowance against its deferred tax assets was no longer necessary. Consistent with the position at December 31, 2024, the company maintains a valuation allowance related to capital loss carryovers in the United Kingdom, state net operating losses unable to be utilized in the United States, and United States interest expected to be limited under Section 163(j).
| 9 |
13. Related Parties
Macquarie Corporate Holdings Pty Limited (UK Branch)
(“Macquarie UK”) (an arranger and lending party under our RCF Agreement) is an affiliate of MIHI LLC, which beneficially owned
approximately
Richard Weil, the brother of A. Lorne Weil, our Executive
Chairman, provides consulting services to the Company relating to our lottery operations in the Dominican Republic under a consultancy
agreement dated December 31, 2021, as amended. The aggregate amount incurred by the Company in consulting fees was $
14. Leases
Certain of our arrangements include leases for equipment installed at customer locations. As the lessor, we combine lease and non-lease components for all classes of underlying assets in arrangements that involve operating leases. The single combined component is accounted for under ASC 606, Revenue from Contracts with Customers based on the consideration that the non-lease components are the predominant items in the arrangements. If a component cannot be combined, the consideration is allocated between the lease component and the non-lease component based on relative standalone selling price. The lease component is accounted for under ASC 842, Leases and the non-lease component is accounted for under ASC 606.
Lease income from operating leases is not material for any of the periods presented, and lease income from sales type leases for the three months ended March 31, 2024 is not material. Lease income from sales type leases for the three months ended March 31, 2025 is as follows:
| Three Months Ended March 31, 2025 | |||||
| (in millions) | |||||
| Interest receivable | $ | ||||
| Profit recognized at commencement date of sales type leases | |||||
| Unvested Outstanding at March 31, 2025 | $ | ||||
15. Commitments and Contingencies
Employment Agreements
We are party to employment agreements with our executive officers and other employees of the Company and our subsidiaries which contain, among other terms, provisions relating to severance and notice requirements.
Legal Matters
From time to time, the Company may become involved in lawsuits and legal matters arising in the ordinary course of business. While the Company believes that, currently, it has no such matters that are material, there can be no assurance that existing or new matters arising in the ordinary course of business will not have a material adverse effect on the Company’s business, financial condition or results of operations.
| 10 |
16. Pension Plan
We operate a defined contribution plan in the US, and both defined benefit and defined contribution pension schemes in the UK. The defined contribution scheme assets are held separately from those of the Company in independently administered funds.
Defined Benefit Pension Scheme
The defined benefit scheme has been closed to new entrants since April 1, 1999 and closed to future accruals for services rendered to the Company for the entire financial statement periods presented. The Actuarial Valuation of the scheme as at March 31, 2024, determined that the statutory funding objective was not met, i.e., there were insufficient assets to cover the scheme’s technical provisions and there was a funding shortfall.
In March 2025, a recovery plan was put in place to eliminate the funding shortfall. The plan expects the shortfall to be eliminated by October 31, 2026.
The following table presents the components of our net periodic pension cost:
| Three Months Ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| (in millions) | ||||||||
| Components of net periodic pension cost: | ||||||||
| Interest cost | $ | $ | ||||||
| Expected return on plan assets | ( | ) | ( | ) | ||||
| Amortization of net loss | ||||||||
| Net periodic cost | $ | $ | ||||||
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17. Segment Reporting and Geographic Information
Operating segments are identified as components of an enterprise for which separate and discrete financial information is available and is used by the chief operating decision maker, or decision-making group, in making decisions on how to allocate resources and assess performance. The Company’s chief decision-making group consists of the Executive Chairman, the Chief Executive Officer and the Chief Financial Officer.
The Company’s chief decision-making group uses measures of segment profit and loss to evaluate the performance areas of 1) Achievement of revenue and gross margin; 2) Level of staff and non-staff expenses against budget; 3) Investment in capitalized software development; and 4) Additional cash expenditures impacting working capital. The decision-making group uses the information to allocate financial resources and drive operation decisions such as investing in new customers, products, geographies and refocusing commercial teams to drive new sales, accelerating or delaying staffing or other selling, general and administrative expenditures and ensuring technology staff utilization on new product development.
The Company operates its business along four operating segments, which are segregated on the basis of revenue stream: Gaming, Virtual Sports, Interactive and Leisure. The Company believes this method of segment reporting reflects both the way its business segments are managed and the way the performance of each segment is evaluated.
Other segment items consist of costs incurred in restructuring activities.
The following tables present revenue, cost of sales, excluding depreciation and amortization, staff-related selling, general and administrative expenses, non-staff related selling, general and administrative expenses, labor costs capitalized, depreciation and amortization, stock-based compensation expense, acquisition related transaction expenses, other segment items, operating profit/(loss), total assets and total capital and other long-lived asset expenditures for the periods ended March 31, 2025 and March 31, 2024, respectively, by business segment. Certain unallocated corporate function costs have not been allocated to the Company’s reportable operating segments because these costs are not allocable and to do so would not be practical. Corporate function costs consist primarily of selling, general and administrative expenses, depreciation and amortization, capital expenditures, right of use assets, cash, prepaid expenses and property and equipment and software development costs relating to corporate/shared functions. All acquisition and integration related transaction expenses are allocated as corporate function costs.
Segment Information
Three Months Ended March 31, 2025
| Gaming | Virtual Sports | Interactive | Leisure | Corporate Functions | Total | |||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||
| Revenue: | ||||||||||||||||||||||||
| Service | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Product sales | ||||||||||||||||||||||||
| Total revenue | ||||||||||||||||||||||||
| Cost of sales, excluding depreciation and amortization: | ||||||||||||||||||||||||
| Cost of service | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Cost of product sales | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Staff-related selling, general and administrative expenses | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Non-staff related selling, general and administrative expenses | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Labor costs capitalized | ||||||||||||||||||||||||
| Stock-based compensation expense | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Depreciation and amortization | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Other segment items | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Segment operating income (loss) | ( | ) | ( | ) | ||||||||||||||||||||
| Net operating income | $ | |||||||||||||||||||||||
| Total capital and other long-lived asset expenditures for the three months ended March 31, 2025 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
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Three Months Ended March 31, 2024
| Gaming | Virtual Sports | Interactive | Leisure | Corporate Functions | Total | |||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||
| Revenue: | ||||||||||||||||||||||||
| Service | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Product sales | ||||||||||||||||||||||||
| Total revenue | ||||||||||||||||||||||||
| Cost of sales, excluding depreciation and amortization: | ||||||||||||||||||||||||
| Cost of service | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Cost of product sales | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Staff-related selling, general and administrative expenses | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Non-staff related selling, general and administrative expenses | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Labor costs capitalized | ||||||||||||||||||||||||
| Stock-based compensation expense | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Acquisition and integration related transaction expenses | ||||||||||||||||||||||||
| Depreciation and amortization | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Other segment items | ( | ) | ( | ) | ||||||||||||||||||||
| Segment operating income (loss) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Net operating loss | $ | ( | ) | |||||||||||||||||||||
| Total capital and other long-lived asset expenditures for the three months ended March 31, 2024 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
Geographic Information
Geographic information for revenue is set forth below:
| Three Months Ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| (in millions) | ||||||||
| Total revenue | ||||||||
| UK | $ | $ | ||||||
| USA | ||||||||
| Greece | ||||||||
| Rest of world | ||||||||
| Total | $ | $ | ||||||
UK revenue includes revenue from customers headquartered in the UK, but whose revenue is generated globally.
Geographic information of our non-current assets excluding goodwill and deferred tax is set forth below:
| March 31, 2025 | December 31, 2024 | |||||||
| (in millions) | ||||||||
| UK | $ | $ | ||||||
| Greece | ||||||||
| Rest of world | ||||||||
| Total | $ | $ | ||||||
Software development costs are included as attributable to the market in which they are utilized.
18. Customer Concentration
During the three months ended March 31, 2025, there
were
At March 31, 2025 there was one customer that represented
at least 10% of the Company’s accounts receivable, accounting for approximately
19. Revision of Previously Reported Information
In connection with the preparation of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2024 (the “2024 Form 10-K”), the Company identified immaterial errors in its previously reported financial statements for the periods ended March 31, 2024, June 30, 2024 and September 30, 2024 relating to the classification of leases between operating and sales type.
In accordance with Staff Accounting Bulletin (“SAB”) 99, Materiality, and SAB 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in the Current Year Financial Statements, the Company evaluated the materiality of the errors from qualitative and quantitative perspectives, and concluded that the errors were immaterial to any prior interim financial statements. Notwithstanding this conclusion, management has revised the accompanying consolidated financial statements for 2024, and related notes included herein to correct the errors. Management also revised the consolidated financial statements for 2024 and related notes in the 2024 Form 10-K, filed with the SEC on March 26, 2025.
The following tables present the effect of correcting this error on the Company’s previously issued financial statements.
For the period ended March 31, 2024
| As previously reported | Adjustment | As revised | ||||||||||
| (in millions, except per share data) | ||||||||||||
| Consolidated Statement of Operations | ||||||||||||
| Revenue | $ | $ | ( | ) | $ | |||||||
| Depreciation and amortization | ( | ) | ( | ) | ||||||||
| Net operating loss | ( | ) | ( | ) | ( | ) | ||||||
| Interest expense, net | ( | ) | ( | ) | ||||||||
| Total other expense, net | ( | ) | ( | ) | ||||||||
| Loss before income taxes | ( | ) | ( | ) | ( | ) | ||||||
| Net loss | ( | ) | ( | ) | ( | ) | ||||||
| Comprehensive loss | ( | ) | ( | ) | ( | ) | ||||||
| Net loss per common share – basic and diluted | ) | ) | ) | |||||||||
For the period ended March 31, 2024
| As previously reported | Adjustment | As revised | ||||||||||
| (in millions) | ||||||||||||
| Consolidated Statement of Cashflows | ||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Depreciation and amortization | ( | ) | ||||||||||
| Accounts receivable | ( | ) | ||||||||||
| Prepaid expenses and other assets | ||||||||||||
| Net cash provided by operating activities | ||||||||||||
20. Subsequent Events
The Company evaluates subsequent events and transactions that occur after the balance sheet date up to the date that the financial statements were issued. The Company did not identify subsequent events that would have required adjustment or disclosure in the consolidated financial statements.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and related notes thereto included elsewhere in this report. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual future results could differ materially from the historical results discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the section titled “Risk Factors” included elsewhere in this report.
Forward-Looking Statements
We make forward-looking statements in this Management’s Discussion and Analysis of Financial Condition and Results of Operations. For definitions of the term “forward-looking statements”, see the definitions provided in the Cautionary Note Regarding Forward-Looking Statements at the forepart of this report.
Seasonality
Our results of operations can fluctuate due to seasonal trends and other factors. Sales of our gaming machines can vary quarter on quarter due to both supply and demand factors. Player activity for our holiday parks is generally higher in the second and third quarters of the year, particularly during the summer months and slower during the first and fourth quarters of the year.
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Revenue
We generate revenue in four principal ways: i) on a participation basis, ii) on a fixed rental fee basis, iii) through product sales and iv) through software license fees. Participation revenue generally includes a right to receive a share of our customers’ gaming revenue, typically as a share of net win but sometimes as a share of the handle or “coin in” which represents the total amount wagered.
Geographic Range
Geographically, the majority of our revenue is derived from, and the majority of our non-current assets are attributable to, our UK operations. The remainder of our revenue is derived from, and non-current assets attributable to, Greece and the rest of the world (including North America).
For the three-months ended March 31, 2025, we derived approximately 65% of our revenue from the UK (including customers headquartered in the UK but whose revenue is generated globally), 10% from Greece, 11% from USA, and the remaining 14% across the rest of the world. For the three-months ended March 31, 2024, we derived approximately 74% of our revenue from the UK (including customers headquartered in the UK but whose revenue is generated globally), 10% from Greece, 6% from USA, and the remaining 10% across the rest of the world.
As of March 31, 2025, our non-current assets (excluding goodwill) were attributable as follows: 74% to the UK, 11% to Greece and 15% across the rest of the world. As of March 31, 2024, our non-current assets (excluding goodwill) were attributable as follows: 75% to the UK, 8% to Greece and 17% across the rest of the world.
Foreign Exchange
Our results are affected by changes in foreign currency exchange rates as a result of the translation of foreign functional currencies into our reporting currency and the re-measurement of foreign currency transactions and balances. The impact of foreign currency exchange rate fluctuations represents the difference between current rates and prior-period rates applied to current activity. The geographic region in which the largest portion of our business is operated is the UK and the British pound (“GBP”) is considered to be our functional currency. Our reporting currency is the U.S. dollar (“USD”). Our results are translated from our functional currency of GBP into the reporting currency of USD using average rates for profit and loss transactions and applicable spot rates for period-end balances. The effect of translating our functional currency into our reporting currency, as well as translating the results of foreign subsidiaries that have a different functional currency into our functional currency, is reported separately in Accumulated Other Comprehensive Income.
During the three-months ended March 31, 2025, we derived approximately 35% of our revenue from sales to customers outside the UK, compared to 26% during the three months ended March 31, 2024.
In the section “Results of Operations” below, currency impacts shown have been calculated as the current-period average GBP:USD rate less the equivalent average rate in the prior period, multiplied by the current period amount in our functional currency (GBP). The remaining difference, referred to as functional currency at constant rate, is calculated as the difference in our functional currency, multiplied by the prior-period average GBP:USD rate. This is not a U.S. GAAP measure but is one which management believes gives a clearer indication of results. In the tables below, variances in particular line items from period to period exclude currency translation movements, and currency translation impacts are shown independently.
Non-GAAP Financial Measures
We use certain financial measures that are not compliant with U.S. GAAP (“Non-GAAP financial measures”), including EBITDA and Adjusted EBITDA, to analyze our operating performance. In this discussion and analysis, we present certain non-GAAP financial measures, define and explain these measures and provide reconciliations to the most comparable U.S. GAAP measures. See “Non-GAAP Financial Measures” below.
Results of Operations
Our results are affected by changes in foreign currency exchange rates, primarily between our functional currency (GBP) and our reporting currency (USD). During the periods ended March 31, 2025 and March 31, 2024, the average GBP:USD rates were for the three-month period 1.26 and 1.27, respectively.
The following discussion and analysis of our results of operations has been organized in the following manner:
| ● | a discussion and analysis of the Company’s results of operations for the three-month period ended March 31, 2025, compared to the same period in 2024; and | |
| ● | a discussion and analysis of the results of operations for each of the Company’s segments (Gaming, Virtual Sports, Interactive and Leisure) for the three-month period ended March 31, 2025, compared to the same period in 2024, including key performance indicator (“KPI”) analysis. |
In the discussion and analysis below, certain data may vary from the amounts presented in our consolidated financial statements due to rounding.
For all reported variances, refer to the overall company and segment tables shown below. All variances discussed in the overall company and segment results are on a functional currency (at constant rate) basis, which excludes the impact of any changes in foreign currency exchange rates.
Key Events
During the three-month period ended March 31, 2025 in the Gaming segment, we completed the installation of 5,000 new Vantage® terminals to William Hill venues. In the Greek market 1,400 new terminals were delivered to OPAP as part of the order of 4,000 new VLT’s placed in the fourth quarter of 2024.
During the three-month period ended March 31, 2025 the Interactive segment went live with 18 new operators increasing the total number of customers at the end of the period by 15 due to the closure of a few smaller customers.
During the three-month period ended March 31, 2025 the Leisure segment opened two new motorway service areas with existing customers.
Key agreements signed in the three-month period ended March 31, 2025 include a five-year contract with Buzz Bingo, a five-year contract with MOTO and a five-year contract with Welcome Break all for the provision of gaming machines in the Leisure segment.
| 15 |
Overall Company Results
Three Months Ended March 31, 2025, compared to Three Months Ended March 31, 2024
| For the Three-Month | Variance | |||||||||||||||||||||
| Period Ended | March 31, 2025 vs March 31, 2024 | |||||||||||||||||||||
| (In millions) | March 31, 2025 | March 31, 2024 | Variance Attributable to Currency Movement | Variance on a Functional currency basis | Total Functional Currency Variance % | Total Reported Variance % | ||||||||||||||||
| Revenue: | ||||||||||||||||||||||
| Service | $ | 57.0 | $ | 56.2 | $ | (0.4 | ) | $ | 1.2 | 2 | % | 1% | ||||||||||
| Product | 3.4 | 6.1 | 0.1 | (2.8 | ) | (46 | )% | (44)% | ||||||||||||||
| Total revenue | 60.4 | 62.3 | (0.3 | ) | (1.6 | ) | (3 | )% | (3)% | |||||||||||||
| Cost of Sales, excluding depreciation and amortization: | ||||||||||||||||||||||
| Cost of Service | (15.0 | ) | (15.9 | ) | - | 0.9 | 6 | % | 6% | |||||||||||||
| Cost of Product | (2.9 | ) | (4.5 | ) | - | 1.6 | 36 | % | 36% | |||||||||||||
| Staff-related selling, general and administrative expenses | (15.2 | ) | (15.8 | ) | 0.2 | 0.4 | 3 | % | 4% | |||||||||||||
| Non-staff related selling, general and administrative expenses | (12.4 | ) | (13.6 | ) | 0.2 | 1.0 | 7 | % | 9% | |||||||||||||
| Labor costs capitalized | 3.5 | 3.0 | - | 0.5 | 17 | % | 17% | |||||||||||||||
| Other segment items: | ||||||||||||||||||||||
| Stock-based compensation | (1.4 | ) | (2.3 | ) | - | 0.9 | 39 | % | 39% | |||||||||||||
| Depreciation and amortization | (10.6 | ) | (9.8 | ) | - | (0.8 | ) | (8 | )% | (8)% | ||||||||||||
| Other selling, general and administrative expenses | (4.8 | ) | (5.5 | ) | - | 0.7 | 13 | % | 13% | |||||||||||||
| Net operating Income / (Loss) | 1.6 | (2.1 | ) | 0.1 | 3.6 | 171 | % | 176% | ||||||||||||||
| Other income (expense) | ||||||||||||||||||||||
| Interest expense, net | (7.0 | ) | (6.5 | ) | - | (0.5 | ) | (8 | )% | (8)% | ||||||||||||
| Other finance income (expense) | 0.2 | 0.1 | - | 0.1 | 100 | % | 100% | |||||||||||||||
| Total other income (expense), net | (6.8 | ) | (6.4 | ) | - | (0.4 | ) | (6 | )% | (6)% | ||||||||||||
| Net Loss from continuing operations before income taxes | (5.2 | ) | (8.5 | ) | 0.1 | 3.2 | 38 | % | 39% | |||||||||||||
| Income tax income (expense) | 5.1 | 2.1 | 0.1 | 2.9 | 138 | % | 143% | |||||||||||||||
| Net Loss | $ | (0.1 | ) | $ | (6.4 | ) | $ | 0.2 | $ | 6.1 | 95 | % | 98% | |||||||||
| Exchange Rate - $ to £ | 1.26 | 1.27 | ||||||||||||||||||||
See “Segments Results” below for a more detailed explanation of the significant changes in our components of revenue within the individual segment results of operations.
Revenue (for the three-months ended March 31, 2025, compared to the three-months ended March 31, 2024)
Consolidated Reported Revenue by Segment
For the three-month period ended March 31, 2025, revenue on a functional currency (at constant rate) basis decreased by $1.6 million, or 3%.
For the three-month period ended March 31, 2025 Gaming revenue declined by $1.5 million, predominantly due to a decrease in product sales of $2.8 million due to a decline in Product sales as activity is not linear year-on-year. Gaming service revenue increased by $1.3 million, predominantly due to growth in the UK and Greece. Virtual Sports declined by $3.6 million, with $3.3 million of the reduction coming from online sales, while Interactive grew by $4.1 million due to growth driven in the UK and North American markets. Leisure revenue declined by $0.6 million predominantly due to Holiday Parks and Pubs sectors.
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Cost of Sales, excluding depreciation and amortization
Cost of sales, excluding depreciation and amortization, for the three-month period ended March 31, 2025, decreased by $2.5 million, or 12%. This was driven by a decrease in cost of service of $0.9 million, mainly driven by seasonal timing of key UK public holidays in Leisure and a $1.6 million decrease in cost of product, predominantly driven by the decreased Video Lottery Terminal sales in Gaming.
Non-staff related selling, general and administrative expenses
Non-Staff related selling, general and administrative expenses for the three-month period ended March 31, 2025 decreased by $1.0 million, or 7%. The decrease in the three-month period was predominantly driven by reductions in Professional Fees of $1.0 million due to timing of activities, favorable realized gain on foreign currency movements of $0.3 million and lower facility costs of $0.2 million partially offset by higher IT costs of $0.5 million.
Stock-based compensation
During the three-month period ended March 31, 2025, the Company recorded expenses of $1.4 million, compared to expenses of $2.3 million, for the three-month period ended March 31, 2024. All expenses related to outstanding awards.
Depreciation and amortization
Depreciation and amortization for the three-month period ended March 31, 2025, increased by $0.8 million, driven mainly by increases in Gaming of $0.5 million and Leisure increase of $0.2 million due to an increase in machine assets, Virtual Sports of $0.4 million for increased software development and intangible assets, offset by a reduction in Interactive of $0.5 million as assets reached full amortization.
Other selling, general and administrative expenses
Other selling, general and administrative expenses for the three-month period ended March 31, 2025 decreased by $0.7 million, or 13%. The decrease in the three-month period was driven primarily by the timing of costs relating to the restatement of previously issued financial statements and expense relating to restructuring costs.
Net operating income / (Loss)
During the three-month period ended March 31, 2025, net operating income was $1.6 million, an increase of $3.6 million, compared to the prior year period. This increase was primarily driven by the increase in gross margin and a decrease in staff and non-staff related selling, general and administrative expenses, along with stock-based compensation and other selling general and administrative expenses, partially offset by an increase in depreciation and amortization.
Net Loss
For the three-month period ended March 31, 2025, net loss was $0.1 million, compared to net loss of $6.4 million in the prior year period. The increase was primarily driven by an increase of income tax income of $5.1 million as the effective tax rate in any given year is influenced by a variety of factors including the level of pre-tax income or loss, the income mix between jurisdictions, and any discrete items that may occur.
Deferred Tax
The Company maintains a valuation allowance related to capital loss carryovers in the United Kingdom, state net operating losses unable to be utilized in the United States, and United States interest expected to be limited under Section 163(j).
Segment Results (for the three-months ended March 31, 2025, compared to the three-months ended March 31, 2024)
Gaming
We generate revenue from our Gaming segment through the delivery of our gaming terminals preloaded with proprietary gaming software, server-based content, as well as services such as terminal repairs, maintenance, software updates and upgrades on a when and if available basis and content development. We receive rental fees for machines, typically in conjunction with long-term contracts, on both a participation and fixed fee basis. Our participation contracts are typically structured to pay us a percentage of net win (defined as net revenue to our operator customers, after deducting player winnings, free bets or plays and any relevant regulatory levies) from gaming terminals placed in our customers’ facilities. Typically, we recognize revenue from these arrangements on a daily basis over the term of the contract.
Revenue growth for our Gaming business is principally driven by changes in (i) the number of operator customers we have, (ii) the number of Gaming machines in operation, (iii) the net win performance of the machines and (iv) the net win percentage that we receive pursuant to our contracts with our customers.
Gaming, Key Performance Indicators
For the Three-Month Period Ended | Variance March 31, 2025 vs March 31, 2024 | |||||||||||||||
| Gaming | March 31, 2025 | March 31, 2024 | % | |||||||||||||
| End of period installed base (# of terminals) (2) | 33,924 | 34,793 | (869 | ) | (2.5 | )% | ||||||||||
| Total Gaming - Average installed base (# of terminals) (2) | 33,889 | 34,783 | (894 | ) | (2.6 | )% | ||||||||||
| Participation - Average installed base (# of terminals) (2) | 28,880 | 29,834 | (954 | ) | (3.2 | )% | ||||||||||
| Fixed Rental - Average installed base (# of terminals) | 8,012 | 4,949 | 3,063 | 61.9 | % | |||||||||||
| Service Only - Average installed base (# of terminals) | 8,080 | 7,848 | 232 | 3.0 | % | |||||||||||
| Customer Gross Win per unit per day (1) (2) | £ | 100.2 | £ | 98.8 | £ | 1.4 | 1.4 | % | ||||||||
| Customer Net Win per unit per day (1) (2) | £ | 73.1 | £ | 72.2 | £ | 0.9 | 1.2 | % | ||||||||
| Inspired Blended Participation Rate | 5.1 | % | 5.4 | % | (0.3 | )% | ||||||||||
| Inspired Fixed Rental Revenue per Gaming Machine per week | £ | 22.8 | £ | 30.5 | £ | (7.7 | ) | (25.2 | )% | |||||||
| Inspired Service Rental Revenue per Gaming Machine per week | £ | 7.8 | £ | 5.1 | £ | 2.7 | 52.9 | % | ||||||||
| Gaming Long term license amortization (£’m) | £ | 0.5 | £ | 0.5 | £ | - | - | % | ||||||||
| Number of Machine sales | 313 | 606 | (293 | ) | (48.3 | )% | ||||||||||
| Average selling price per terminal | £ | 6,192 | £ | 7,171 | £ | (979 | ) | (13.7 | )% | |||||||
| (1) | Includes all SBG terminals in which the Company takes a participation revenue share across all territories. |
| (2) | Includes approximately 2,500 lottery terminals where the revenue share is on handle instead of net win. |
In the table above:
“End of Period Installed Base” is equal to the number of deployed Gaming terminals at the end of each period that have been placed on a participation or fixed rental basis. Gaming participation revenue, which comprises the majority of Gaming Service revenue, is directly related to the participation terminal installed base. This is the medium by which our customers generate revenue and distribute a revenue share to the Company. To the extent all other KPIs and certain other factors remain constant, the larger the installed base, the higher the Company’s revenue would be for a given period. Management gives careful consideration to this KPI in terms of driving growth across the segment. This does not include Service Only terminals.
Revenue is derived from the performance of the installed base as described by the Gross and Net Win KPIs.
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If the End of Period Installed Base is materially different from the Average Installed Base (described below), we believe this gives an indication as to potential future performance. We believe the End of Period Installed Base is particularly useful for assessing new customers or markets, to indicate the progress being made with respect to entering new territories or jurisdictions.
“Total Gaming - Average Installed Base” is the average number of deployed Gaming terminals during the period consisting of both participation terminals and fixed rental terminals. Therefore, it is more closely aligned to revenue in the period. We believe this measure is particularly useful for assessing existing customers or markets to provide comparisons of historical size and performance. This does not include Service Only terminals.
“Participation - Average Installed Base” is the average number of deployed Gaming terminals that generated revenue on a participation basis.
“Fixed Rental - Average Installed Base” is the average number of deployed Gaming terminals that generated revenue on a fixed rental basis.
“Service Only - Average Installed Base” is the average number of terminals that generated revenue on a Service only basis.
“Customer Gross Win per unit per day” is a KPI used by our management to (i) assess impact on the Company’s revenue, (ii) determine changes in the performance of the overall market and (iii) evaluate the impact of regulatory change and our new content releases on our customers. Customer Gross Win per unit per day is the average per unit cash generated across all Gaming terminals in which the Company takes a participation revenue share across all territories in the period, defined as the difference between the amounts staked less winnings to players divided by the Average Installed Base in the period, then divided by the number of days in the period.
Gaming revenue accrued in the period is derived from Customer Gross Win accrued in the period after deducting gaming taxes (defined as a regulatory levy paid by the Customer to government bodies) and applying the Company’s contractual revenue share percentage.
Our management believes Customer Gross Win measures are meaningful because they represent a view of customer operating performance that is unaffected by our revenue share percentage and allow management to (1) readily view operating trends, (2) perform analytical comparisons and benchmarking between customers and (3) identify strategies to improve operating performance in the different markets in which we operate.
“Customer Net Win per unit per day” is Customer Gross Win per unit per day after giving effect to the deduction of gaming taxes.
“Inspired Blended Participation Rate” is the Company’s average revenue share percentage across all participation terminals where revenue is earned on a participation basis, weighted by Customer Net Win per unit per day.
“Inspired Fixed Rental Revenue per Gaming Machine per week” is the Company’s average fixed rental amount across all fixed rental terminals where revenue is generated on a fixed fee basis, per unit per week.
“Inspired Service Rental Revenue per Gaming Machine per week” is the Company’s average service rental amount across all service only rental terminals where revenue is generated on a service only fixed fee basis, per unit per week.
“Gaming Long term license amortization” is the upfront license fee per terminal which is typically spread over the life of the terminal.
Our overall Gaming revenue from terminals placed on a participation basis can therefore be calculated as the product of the Participation - Average Installed Base, the Customer Net Win per unit per day, the number of days in the period, and the Inspired Blended Participation Rate, which is equal to “Participation Revenue”.
“Number of Machine sales” is the number of terminals sold during the period.
“Average selling price per terminal” is the total revenue in GBP of the Gaming terminals sold divided by the “number of Machine sales”.
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Gaming, Recurring Revenue
Set forth below is a breakdown of our Gaming recurring revenue. Gaming recurring revenue principally consists of Gaming participation revenue and fixed rental revenue.
For the Three-Month Period Ended | Variance March 31, 2025 vs March 31, 2024 | |||||||||||||||
| (In £ millions) | March 31, 2025 | March 31, 2024 | % | |||||||||||||
| Gaming Recurring Revenue | ||||||||||||||||
| Total Gaming Revenue | £ | 17.2 | £ | 18.4 | £ | (1.2 | ) | (7 | )% | |||||||
| Gaming Participation Revenue | £ | 9.7 | £ | 10.5 | £ | (0.8 | ) | (8 | )% | |||||||
| Gaming Project Recurring Revenue | £ | 0.2 | £ | 0.2 | £ | - | - | % | ||||||||
| Other Fixed Fee Recurring Revenue | £ | 3.2 | £ | 2.5 | £ | 0.7 | 28 | % | ||||||||
| Gaming Long-term license amortization | £ | 0.5 | £ | 0.6 | £ | (0.1 | ) | (17 | )% | |||||||
| Total Gaming Recurring Revenue * | £ | 13.6 | £ | 13.8 | £ | (0.2 | ) | (1 | )% | |||||||
| Gaming Recurring Revenue as a % of Total Gaming Revenue † | 79 | % | 75 | % | 4 | % | ||||||||||
In the table above:
“Gaming Participation Revenue” includes our share of revenue generated from (i) our Gaming terminals placed in gaming and lottery venues; and (ii) licensing of our game content and intellectual property to third parties.
“Gaming Other Fixed Fee Recurring Revenue” includes service revenue in which the Company earns a periodic fixed fee on a contracted basis.
“Gaming Project Recurring Revenue” relates specifically to a single customer for machine estate upgrades and distribution.
“Gaming Long term license amortization” – see the definition provided above.
“Total Gaming Recurring Revenue” is equal to Gaming Participation Revenue plus Gaming Other Fixed Fee Recurring Revenue.
Gaming, Service Revenue by Region
Set forth below is a breakdown of our Gaming service revenue by geographic region. Gaming Service revenue consists principally of Gaming participation revenue, Gaming other fixed fee revenue, Gaming long-term license amortization and Gaming other non-recurring revenue. See “Gaming Segment Revenue” below for a discussion of gaming service revenue between the periods under review.
| 19 |
|
For the Three-Month Period Ended |
Variance | |||||||||||||||||||
| (In millions) | March 31, 2025 | March 31, 2024 | March 31, 2025 vs March 31, 2024 |
Total Functional Currency % |
||||||||||||||||
| Service Revenue: | ||||||||||||||||||||
| UK LBO | $ | 10.0 | $ | 9.2 | $ | 0.8 | 9 | % | 10 | % | ||||||||||
| UK Other | 2.3 | 2.6 | (0.3 | ) | (12) | % | (10) | % | ||||||||||||
| Italy | 0.4 | 0.4 | - | - | % | (17) | % | |||||||||||||
| Greece | 4.6 | 3.9 | 0.7 | 18 | % | 19 | % | |||||||||||||
| Rest of the World | 0.3 | 0.2 | 0.1 | 50 | % | 46 | % | |||||||||||||
| Lotteries | 1.3 | 1.4 | (0.1 | ) | (7) | % | (5) | % | ||||||||||||
| Total Service revenue | $ | 18.9 | $ | 17.7 | $ | 1.2 | 7 | % | 8 | % | ||||||||||
| Exchange Rate - $ to £ | 1.26 | 1.27 | ||||||||||||||||||
Note: Exchange rate in the table is calculated by dividing the USD total service revenue by the GBP total service revenue, therefore this could be slightly different from the average rate during the period depending on timing of transactions.
Gaming, Results of Operations
For the Three-Month Period Ended | Variance March 31, 2025 vs March 31, 2024 | |||||||||||||||||||||||
| (In millions) | March 31, 2025 | March 31, 2024 | Variance Attributable to Currency Movement | Variance on a Functional currency basis | Total Functional Currency Variance % | Total Reported Variance % | ||||||||||||||||||
| Revenue: | ||||||||||||||||||||||||
| Service | $ | 18.9 | $ | 17.7 | $ | (0.1 | ) | $ | 1.3 | 7 | % | 7 | % | |||||||||||
| Product | 2.8 | 5.5 | 0.1 | (2.8 | ) | (51 | )% | (49 | )% | |||||||||||||||
| Total revenue | 21.7 | 23.2 | 0.0 | (1.5 | ) | (6 | )% | (6 | )% | |||||||||||||||
| Cost of Sales, excluding depreciation and amortization: | ||||||||||||||||||||||||
| Cost of Service | (5.4 | ) | (5.8 | ) | 0.1 | 0.3 | 5 | % | 7 | % | ||||||||||||||
| Cost of Product | (2.6 | ) | (4.3 | ) | - | 1.7 | 40 | % | 40 | % | ||||||||||||||
| Total cost of sales | (8.0 | ) | (10.1 | ) | 0.1 | 2.0 | 20 | % | 21 | % | ||||||||||||||
| Staff-related selling, general and administrative expenses | (3.4 | ) | (4.7 | ) | - | 1.3 | 28 | % | 28 | % | ||||||||||||||
| Non-staff related selling, general and administrative expenses | (2.9 | ) | (2.9 | ) | - | - | - | % | - | % | ||||||||||||||
| Labor costs capitalized | 1.9 | 1.0 | 0.1 | 0.8 | 80 | % | 90 | % | ||||||||||||||||
| Other segment items: | ||||||||||||||||||||||||
| Stock-based compensation | (0.2 | ) | (0.2 | ) | - | - | - | % | - | % | ||||||||||||||
| Depreciation and amortization | (4.7 | ) | (4.2 | ) | - | (0.5 | ) | (12 | )% | (12 | )% | |||||||||||||
| Other selling, general and administrative expenses | (0.2 | ) | - | - | (0.2 | ) | - | % | - | % | ||||||||||||||
| Net operating Income | $ | 4.2 | $ | 2.1 | $ | 0.2 | $ | 1.9 | 90 | % | 100 | % | ||||||||||||
| Exchange Rate - $ to £ | 1.26 | 1.27 | ||||||||||||||||||||||
| 20 |
Note: Exchange rate in the table is calculated by dividing the USD total revenue by the GBP total revenue, therefore this could be slightly different from the average rate during the period depending on timing of transactions.
All variances discussed in the Gaming results below are on a functional currency (at a constant rate) basis, which excludes the impact of any changes in foreign currency exchange rates.
Gaming Revenue
During the three-month period ended March 31, 2025, Gaming revenue decreased by $1.5 million, or 6% compared to the three-month period ended March 31, 2024. This was driven by a $1.3 million increase in Service revenue offset by a $2.8 million decrease in Product revenue.
The increase in Gaming Service revenue was driven by $0.9 million growth in the UK, predominantly due to the William Hill Vantage® terminal deployment.
The Product revenue decrease was primarily driven by lower Product sales, as the prior year period contained higher volumes of hardware sales which are less predictable in nature.
Gaming Operating / Net Income
Net income for the three-month period ended March 31, 2025 increased by $1.9 million compared to the three-month period ended March 31, 2024. The increase was primarily due to a reduction in staff-related selling, general and administrative expenses of $1.3 million driven by the closure of the Bridgend manufacturing facility in 2024.
Virtual Sports
We generate revenue from our Virtual Sports segment through our on-premise licensing solution and hosting of our products. We primarily receive fees on a participation basis. Our participation contracts are typically structured to pay us a percentage of net win (defined as net revenue to our operator customers, after deducting player winnings, free bets or plays and other promotional costs and any relevant regulatory levies) from Virtual Sports content placed on our customers’ websites or in our customers’ facilities. Typically, we recognize revenue from these arrangements on a daily basis over the term of the contract.
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Revenue growth for our Virtual Sports segment is principally driven by the number of customers we have, the net win performance of the games and the net win percentage that we receive pursuant to our contracts with our customers.
Virtual Sports, Key Performance Indicators
For the Three-Month Period Ended | Variance March 31, 2025 vs | |||||||||||||||
| March 31, 2025 | March 31, 2024 | % | ||||||||||||||
| Virtuals | ||||||||||||||||
| No. of Live Customers at the end of the period | 57 | 55 | 2 | 3.6 | % | |||||||||||
| Average No. of Live Customers | 57 | 54 | 3 | 5.6 | % | |||||||||||
| Total Revenue (£’m) | £ | 6.9 | £ | 9.8 | £ | (2.9 | ) | (29.6 | )% | |||||||
| Total Revenue £’m - Retail | £ | 2.2 | £ | 2.3 | £ | (0.1 | ) | (4.3 | )% | |||||||
| Total Revenue £’m - Online Virtuals | £ | 4.7 | £ | 7.5 | £ | (2.8 | ) | (37.3 | )% | |||||||
In the table above:
“No. of Live Customers at the end of the period” and “Average No. of Live Customers” represent the number of customers from which there is Virtual Sports revenue at the end of the period and the average number of customers from which there is Virtual Sports revenue during the period, respectively.
“Total Revenue (£m)” represents total revenue for the Virtual Sports segment, including recurring and upfront service revenue. Total revenue is also divided between “Total Revenue (£m) – Retail,” which consists of revenue earned through players wagering at Virtual Sports venues, “Total Revenue (£m) – Online Virtuals,” which consists of revenue earned through players wagering on Virtual Sports online.
Virtual Sports, Recurring Revenue
Set forth below is a breakdown of our Virtual Sports recurring revenue, which consists of Retail Virtuals and Online Virtuals recurring revenue as well as long-term license amortization. See “Virtual Sports Segment Revenue” below for a discussion of Virtual Sports Service revenue between the periods under review.
|
For the Three-Month Period Ended |
Variance March 31, 2025 vs |
|||||||||||||||
| (In £ millions) | March 31, 2025 | March 31, 2024 | % | |||||||||||||
| Virtual Sports Recurring Revenue | ||||||||||||||||
| Total Virtual Sports Revenue | £ | 6.9 | £ | 9.8 | £ | (2.9 | ) | (29.6 | )% | |||||||
| Recurring Revenue - Retail Virtuals | £ | 2.0 | £ | 2.3 | £ | (0.3 | ) | (13.0 | )% | |||||||
| Recurring Revenue - Online Virtuals | £ | 4.7 | £ | 7.3 | £ | (2.6 | ) | (35.6 | )% | |||||||
| Total Virtual Sports Long-term license amortization | £ | 0.2 | £ | 0.1 | £ | 0.1 | 100.0 | % | ||||||||
| Total Virtual Sports Recurring Revenue | £ | 6.9 | £ | 9.7 | £ | (2.8 | ) | (28.9 | )% | |||||||
| Virtual Sports Recurring Revenue as a Percentage of Total Virtual Sports Revenue | 100.0 | % | 99.0 | % | (1.0 | )% | ||||||||||
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“Recurring Revenue” includes our share of revenue generated from (i) our Virtual Sports products placed with operators; (ii) licensing our game content and intellectual property to third parties; and (iii) our games on third-party online gaming platforms that are interoperable with our game servers.
“Virtual Sports Long term license amortization” is the upfront license fee which is typically spread over the life of the contract.
Virtual Sports, Results of Operations
For the Three-Month Period Ended | Variance March 31, 2025 vs March 31, 2024 | |||||||||||||||||||||||
| (In millions) | March 31, 2025 | March 31, 2024 | Variance Attributable to Currency Movement | Variance on a Functional currency basis | Total Functional Currency Variance % | Total Reported Variance % | ||||||||||||||||||
| Service Revenue | $ | 8.7 | $ | 12.4 | $ | (0.1 | ) | $ | (3.6 | ) | (29 | )% | (30 | )% | ||||||||||
| Cost of Service | (0.5 | ) | (0.4 | ) | - | (0.1 | ) | (25 | )% | (25 | )% | |||||||||||||
| Staff-related selling, general and administrative expenses | (2.2 | ) | (2.2 | ) | - | - | - | % | - | % | ||||||||||||||
| Non-staff related selling, general and administrative expenses | (0.6 | ) | (0.7 | ) | - | 0.1 | 14 | % | 14 | % | ||||||||||||||
| Labor costs capitalized | 0.9 | 1.3 | (0.1 | ) | (0.3 | ) | (23 | )% | (31 | )% | ||||||||||||||
| Other segment items: | ||||||||||||||||||||||||
| Stock-based compensation | (0.1 | ) | (0.1 | ) | - | - | - | % | - | % | ||||||||||||||
| Depreciation and amortization | (1.3 | ) | (0.9 | ) | - | (0.4 | ) | (44 | )% | (44 | )% | |||||||||||||
| Net operating Income | $ | 4.9 | $ | 9.4 | $ | (0.2 | ) | $ | (4.3 | ) | (46 | )% | (48 | )% | ||||||||||
| Exchange Rate - $ to £ | 1.26 | 1.27 | ||||||||||||||||||||||
Note: Exchange rate in the table is calculated by dividing the USD service revenue by the GBP service revenue, therefore this could be slightly different from the average rate during the period depending on timing of transactions.
All variances discussed in the Virtual Sports results below are on a functional currency (at constant rate) basis, which excludes the impact of any changes in foreign currency exchange rates.
Virtual Sports revenue
During the three-month period ended March 31, 2025 revenue decreased by $3.6 million, or 29% compared to the three-month period ended March 31, 2024 primarily driven by a major customer optimizing its customer base as well as regulation of the Brazilian market.
Virtual Sports operating income
During the three-month period ended March 31, 2025, net operating income decreased by $4.3 million compared to the three-month period March 31, 2024. This decline was primarily due to the decrease in gross margin of $3.7 million, and an increase in depreciation and amortization of $0.3 million for increased software development and intangible assets.
Interactive
We generate revenue from our Interactive segment through various gaming content made available via third-party aggregation platforms integrated with our remote gaming server or directly on the Company’s remote gaming server platform, and services such as customer support, platform maintenance, updates and upgrades. Typically, we receive fees on a participation basis. Our participation contracts are usually structured to pay us a percentage of net win (defined as net revenue to our operator customers, after deducting player winnings, free bets or plays and other promotional costs and any relevant regulatory levies) from Interactive content placed on our customers’ websites. Typically, we recognize revenue from these arrangements on a daily basis over the term of the contract.
| 23 |
Revenue growth for our Interactive segment is principally driven by the number of customers we have, the number of live games, the net win performance of the games and the net win percentage that we receive pursuant to our contracts with our customers.
Interactive, Key Performance Indicators
For the Three-Month Period Ended | Variance March 31, 2025 vs | |||||||||||||||
| Interactive | March 31, 2025 | March 31, 2024 | % | |||||||||||||
| No. of Live Customers at the end of the period | 190 | 155 | 35 | 22.6 | % | |||||||||||
| Average No. of Live Customers | 183 | 154 | 29 | 18.8 | % | |||||||||||
| No. of Games available at the end of the period | 323 | 298 | 25 | 8.4 | % | |||||||||||
| Average No. of Games available | 323 | 296 | 27 | 9.1 | % | |||||||||||
| No. of Live Games at the end of the period | 299 | 283 | 16 | 5.7 | % | |||||||||||
| Average No. of Live Games | 299 | 275 | 24 | 8.7 | % | |||||||||||
| Total Revenue (£’m) | £ | 9.6 | £ | 6.4 | £ | 3.2 | 50.0 | % | ||||||||
In the table above:
“No. of Live Customers at the end of the period” and “Average No. of Live Customers” represent the number of customers from which there is Interactive revenue at the end of the period and the average number of customers from which there is Interactive revenue during the period, respectively.
“No. of Games available at the end of the period” and “Average No. of Games available” represents the number of games that are available for operators to deploy at the end of the period (including inactive legacy games still available in inactive new games that are available but have not yet gone live with any operators) and the average number of games that are available for operators to deploy during the period, respectively. This incorporated live games and inactive games.
“No. of Live Games at the end of the period” and “Average No. of Live Games” represents the number of games from which there is Interactive revenue at the end of the period and the average number of games from which there is Interactive revenue during the period, respectively.
“Total Revenue (£m)” represents total revenue for the Interactive segment, including recurring and upfront service revenue.
| 24 |
Interactive, Results of Operations
For the Three-Month Period Ended | Variance March 31, 2025 vs March 31, 2024 | |||||||||||||||||||||||
| (In millions) | March 31, 2025 | March 31, 2024 | Variance Attributable to Currency Movement | Variance on a Functional currency basis | Total Functional Currency Variance % | Total Reported Variance % | ||||||||||||||||||
| Service Revenue | $ | 12.1 | $ | 8.1 | $ | (0.1 | ) | $ | 4.1 | 51 | % | 49 | % | |||||||||||
| Cost of Service | (0.6 | ) | (0.6 | ) | - | - | - | - | ||||||||||||||||
| Staff-related selling, general and administrative expenses | (2.4 | ) | (2.1 | ) | - | (0.3 | ) | (14 | )% | (14 | )% | |||||||||||||
| Non-staff related selling, general and administrative expenses | (2.0 | ) | (1.4 | ) | - | (0.6 | ) | (43 | )% | (43 | )% | |||||||||||||
| Labor costs capitalized | 0.6 | 0.4 | - | 0.2 | 50 | % | 50 | % | ||||||||||||||||
| Other segment items: | ||||||||||||||||||||||||
| Stock-based compensation | (0.1 | ) | (0.1 | ) | (0.1 | ) | 0.1 | 100 | % | - | % | |||||||||||||
| Depreciation and amortization | (0.7 | ) | (1.2 | ) | - | 0.5 | 42 | % | 42 | % | ||||||||||||||
| Net operating Income | $ | 6.9 | $ | 3.1 | $ | (0.2 | ) | $ | 4.0 | 129 | % | 123 | % | |||||||||||
| Exchange Rate - $ to £ | 1.26 | 1.27 | ||||||||||||||||||||||
Note: Exchange rate in the table is calculated by dividing the USD service revenue by the GBP service revenue, therefore this could be slightly different from the average rate during the period depending on timing of transactions.
All variances discussed in the Interactive results below are on a functional currency (at constant rate) basis, which excludes the impact of any changes in foreign currency exchange rates.
Interactive revenue
During the three-month period ended March 31, 2025 revenue increased by $4.1 million, or 51% compared to the three-month period ended March 31, 2024, driven by recurring revenue growth in the UK and North America due to the launch of new content across the estate and increased promotional activity through exclusive deals with tier-one customers.
Interactive operating income
Operating income for the three-month period ended March 31, 2025 increased by $4.0 million compared to the three-month period ended March 31, 2024. This increase was driven by the increase in gross margin, partially offset by increases in staff related selling, general and administrative expenses of $0.3 million driven by annual salary increases and additional headcount, non-staff related selling, general and administrative expenses of $0.6 million predominantly due to increased IT network costs supporting revenues, partially offset by lower depreciation and amortization of $0.5 million as assets reached full amortization.
Leisure
We typically generate revenue from our Leisure segment through the supply of our gaming and amusement machines. We receive rental fees for machines, typically on a long-term contract basis, on both a participation and fixed fee basis. Our participation contracts are usually structured to pay us a percentage of net win (defined as net revenue to our operator customers, after deducting player winnings, free bets or plays, any relevant regulatory levies and minimum fixed incomes where applicable) from machines placed in our customers’ facilities. We generally recognize revenue from these arrangements on a daily basis over the term of the contract.
Revenue growth for our Leisure segment is principally driven by the number of customers we have, the number of machines in operation, the net win performance of the machines and the net win percentage that we receive pursuant to our contracts with our customers.
| 25 |
Leisure, Key Performance Indicators
For the Three-Month Period Ended | Variance March 31, 2025 | |||||||||||||||
| Leisure | March 31, 2025 | March 31, 2024 | % | |||||||||||||
| End of period installed base Gaming machines (# of terminals) | 9,808 | 10,675 | (867 | ) | (8.1 | )% | ||||||||||
| Average installed base Gaming machines (# of terminals) | 9,894 | 10,677 | (783 | ) | (7.3 | )% | ||||||||||
| End of period installed base Other (# of terminals) | 3,322 | 4,072 | (750 | ) | (18.4 | )% | ||||||||||
| Average installed base Other (# of terminals) | 3,422 | 4,101 | (679 | ) | (16.6 | )% | ||||||||||
| Pub Digital Gaming Machines - Average installed base (# of terminals) | 6,130 | 6,308 | (178 | ) | (2.8 | )% | ||||||||||
| Pub Analogue Gaming Machines - Average installed base (# of terminals) | 78 | 159 | (81 | ) | (50.9 | )% | ||||||||||
| MSA and Bingo Gaming Machines - Average installed base (# of terminals)(1) | 2,673 | 3,057 | (384 | ) | (12.6 | )% | ||||||||||
| Inspired Leisure Revenue per Gaming Machine per week | £ | 74.3 | £ | 70.2 | £ | 4.1 | 5.8 | % | ||||||||
| Inspired Pub Digital Revenue per Gaming Machine per week | £ | 74.0 | £ | 73.3 | £ | 0.7 | 1.0 | % | ||||||||
| Inspired Pub Analogue Revenue per Gaming Machine per week | £ | 24.9 | £ | 31.8 | £ | (6.9 | ) | (21.7 | )% | |||||||
| Inspired MSA and Bingo Revenue per Gaming Machine per week | £ | 101.1 | £ | 91.6 | £ | 9.5 | 10.4 | % | ||||||||
| Inspired Other Revenue per Machine per week | £ | 30.3 | £ | 23.9 | £ | 6.4 | 26.8 | % | ||||||||
| Total Holiday Parks Revenue (Gaming and Non Gaming) (£’m) | £ | 2.9 | £ | 3.2 | £ | (0.3 | ) | (9.4 | )% | |||||||
| (1) | Motorway Service Area machines |
In the table above:
“End of period installed base Gaming” and “Average installed base Gaming” represent the number of gaming machines installed (excluding Holiday Park machines) that are Category B and Category C only (UK Gambling Act 2005 places machines into categories dependent on maximum stake and prize available), from which there is participation or rental revenue at the end of the period or as an average over the period.
“End of period installed base Other” and “Average installed base Other” represent the number of all other category machines installed (excluding Holiday Park machines) from which there is participation or rental revenue at the end of the period or as an average over the period.
“Revenue per machine unit per week” represents the average weekly participation or rental revenue recognized during the period.
| 26 |
Leisure, Results of Operations
For the Three-Month Period Ended | Variance March 31, 2025 vs March 31, 2024 | |||||||||||||||||||||||
| (In millions) | March 31, 2025 | March 31, 2024 | Variance Attributable to Currency Movement | Variance on a Functional currency basis | Total Functional Currency Variance % | Total Reported Variance % | ||||||||||||||||||
| Revenue: | ||||||||||||||||||||||||
| Service | $ | 17.3 | $ | 18.0 | $ | (0.1 | ) | $ | (0.6 | ) | (3 | )% | (4 | )% | ||||||||||
| Product | 0.6 | 0.6 | - | - | - | % | - | % | ||||||||||||||||
| Total revenue | 17.9 | 18.6 | (0.1 | ) | (0.6 | ) | (3 | )% | (4 | )% | ||||||||||||||
| Cost of Sales, excluding depreciation and amortization: | ||||||||||||||||||||||||
| Cost of Service | (8.5 | ) | (9.1 | ) | - | 0.6 | 7 | % | 7 | % | ||||||||||||||
| Cost of Product | (0.3 | ) | (0.2 | ) | - | (0.1 | ) | (50 | )% | (50 | )% | |||||||||||||
| Total cost of sales | (8.8 | ) | (9.3 | ) | - | 0.5 | 5 | % | 5 | % | ||||||||||||||
| Staff-related selling, general and administrative expenses | (4.0 | ) | (4.2 | ) | 0.1 | 0.1 | 2 | % | 5 | % | ||||||||||||||
| Non-staff related selling, general and administrative expenses | (3.5 | ) | (3.6 | ) | - | 0.1 | 3 | % | 3 | % | ||||||||||||||
| Labor costs capitalized | 0.1 | 0.3 | - | (0.2 | ) | (67 | )% | (67 | )% | |||||||||||||||
| Other segment items: | ||||||||||||||||||||||||
| Stock-based compensation | (0.1 | ) | (0.1 | ) | (0.1 | ) | 0.1 | 100 | % | - | % | |||||||||||||
| Depreciation and amortization | (3.2 | ) | (3.0 | ) | - | (0.2 | ) | (7 | )% | (7 | )% | |||||||||||||
| Other selling, general and administrative expenses | (0.1 | ) | - | (0.1 | ) | - | -% | (100 | )% | |||||||||||||||
| Net operating Loss | (1.7 | ) | (1.3 | ) | $ | (0.2 | ) | $ | (0.2 | ) | (15 | )% | (31 | )% | ||||||||||
| Exchange Rate - $ to £ | 1.26 | 1.27 | ||||||||||||||||||||||
Note: Exchange rate in the table is calculated by dividing the USD total revenue by the GBP total revenue, therefore this could be slightly different from the average rate during the period depending on timing of transactions.
All variances discussed in the Leisure results below are on a functional currency (at constant rate) basis, which excludes the impact of any changes in foreign currency exchange rates.
Leisure Revenue
For the three-month period ended March 31, 2025 revenue decreased by $0.6 million or 3% compared to the three-month period ended March 31,2024, which was predominantly due to seasonality in Holiday Parks for the timing of a key public holiday in the UK.
Leisure Operating Income
Operating income for the three-month period ended March 31, 2025 decreased by $0.2 million compared to the three-month period ended March 31, 2024. This was primarily due to lower labor costs capitalized due to the mix of projects completed and higher depreciation and amortization for assets capitalized in previous periods.
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Non-GAAP Financial Measures
We use certain non-GAAP financial measures, including EBITDA, to analyze our operating performance. We use these financial measures to manage our business on a day-to-day basis. We believe that these measures are also commonly used in our industry to measure performance. For these reasons, we believe that these non-GAAP financial measures provide expanded insight into our business, in addition to standard U.S. GAAP financial measures. There are no specific rules or regulations for defining and using non-GAAP financial measures, and as a result the measures we use may not be comparable to measures used by other companies, even if they have similar labels. The presentation of non-GAAP financial information should not be considered in isolation from, or as a substitute for, or superior to, financial information prepared and presented in accordance with U.S. GAAP. You should consider our non-GAAP financial measures in conjunction with our U.S. GAAP financial measures.
We define our non-GAAP financial measures as follows:
EBITDA is defined as net income (loss) excluding depreciation and amortization, interest expense, interest income and income tax expense.
Adjusted EBITDA is defined as net income (loss) excluding depreciation and amortization, interest expense, interest income and income tax expense, and other additional exclusions and adjustments (see Adjusted EBITDA reconciliation table). Such additional excluded amounts include stock-based compensation U.S. GAAP charges where the associated liability is expected to be settled in stock, and changes in the value of earnout liabilities and income and expenditure in relation to legacy portions of the business (being those portions where trading no longer occurs) including closed defined benefit pension schemes. Additional adjustments are made for items considered outside the normal course of business, including but not limited to (1) restructuring costs, which include charges attributable to employee severance, impairments, management changes, restructuring, dual running costs, costs related to facility closures and integration costs, (2) merger and acquisition costs and (3) gains or losses not in the ordinary course of business (4) the costs of the restatement of previously issued financial statements.
We believe Adjusted EBITDA, when considered along with other performance measures, is a particularly useful performance measure, because it focuses on certain operating drivers of the business, including sales growth, operating costs, selling and administrative expense and other operating income and expense. We believe Adjusted EBITDA can provide a more complete understanding of our operating results and the trends to which we are subject, and an enhanced overall understanding of our financial performance and prospects for the future. Adjusted EBITDA is not intended to be a measure of liquidity or cash flows from operations or a measure comparable to net income or loss, because it does not take into account certain aspects of our operating performance (for example, it excludes non-recurring gains and losses which are not deemed to be a normal part of underlying business activities). Our use of Adjusted EBITDA may not be comparable to the use by other companies of similarly termed measures. Management compensates for these limitations by using Adjusted EBITDA as only one of several measures for evaluating our operating performance. In addition, capital expenditures, which affect depreciation and amortization, interest expense, and income tax benefit (expense), are evaluated separately by management.
Functional Currency at Constant rate. Currency impacts discussed have been calculated as the current-period average GBP: USD rate less the equivalent average rate in the prior period, multiplied by the current period amount in our functional currency (GBP). The remaining difference, referred to as functional currency at constant rate, is calculated as the difference in our functional currency, multiplied by the prior-period average GBP: USD rate, as a proxy for functional currency at constant rate movement.
Currency Movement represents the difference between the results in our reporting currency (USD) and the results on a functional currency (at constant rate) basis.
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Reconciliations from net loss, as shown in our Consolidated Statements of Operations and Comprehensive Income (Loss), to Adjusted EBITDA are shown below.
Reconciliation to Adjusted EBITDA by segment for the Three Months Ended March 31, 2025
| For the Three-Month Period Ended March 31, 2025 | ||||||||||||||||||||||||||
| (In millions) | Statutory Heading | Total | Gaming | Virtual Sports | Interactive | Leisure | Corporate | |||||||||||||||||||
| Net Income/ (loss) | Net Income | $ | (0.1 | ) | $ | 4.2 | $ | 4.9 | $ | 6.9 | $ | (1.7 | ) | $ | (14.4 | ) | ||||||||||
| Pension charges (1) | Staff-related selling, general and administrative expenses | $ | 0.2 | 0.2 | ||||||||||||||||||||||
| Cost of Group Restructure (2) | Other selling, general and administrative expenses | $ | 0.6 | 0.2 | 0.1 | 0.3 | ||||||||||||||||||||
| Cost of Group Restatement (3) | Other selling, general and administrative expenses | $ | 4.0 | 4.0 | ||||||||||||||||||||||
| Stock-based compensation expense (4) | Stock-based compensation expense | $ | 1.4 | 0.2 | 0.1 | 0.1 | 0.1 | 0.9 | ||||||||||||||||||
| Depreciation and amortization (4) | Depreciation and amortization | $ | 10.6 | 4.7 | 1.3 | 0.7 | 3.2 | 0.7 | ||||||||||||||||||
| Interest expense net (4) | Interest expense net | $ | 7.0 | 7.0 | ||||||||||||||||||||||
| Other finance expenses / (income) (4) | Other finance expenses / (income) | $ | (0.2 | ) | (0.2 | ) | ||||||||||||||||||||
| Income Tax (4) | Income Tax | $ | (5.1 | ) | (5.1 | ) | ||||||||||||||||||||
| Adjusted EBITDA | $ | 18.4 | $ | 9.3 | $ | 6.3 | $ | 7.7 | $ | 1.7 | $ | (6.6 | ) | |||||||||||||
| Adjusted EBITDA | £ | 14.6 | £ | 7.3 | £ | 5.0 | £ | 6.2 | £ | 1.5 | £ | (5.4 | ) | |||||||||||||
| Exchange Rate - $ to £ (6) | 1.26 | |||||||||||||||||||||||||
Note: Certain unallocated corporate function costs have not been allocated to the Company’s reportable operating segments because these costs are not allocable and to do so would not be practical; these are shown in the Corporate category.
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Reconciliation to Adjusted EBITDA by segment for the Three Months Ended March 31, 2024
| For the Three-Month Period Ended March 31, 2024 | ||||||||||||||||||||||||||
| (In millions) | Statutory Heading | Total | Gaming | Virtual Sports | Interactive | Leisure | Corporate | |||||||||||||||||||
| Net Income/ (loss) | $ | (6.4 | ) | $ | 2.1 | $ | 9.4 | $ | 3.1 | $ | (1.3 | ) | $ | (19.7 | ) | |||||||||||
| Pension charges (1) | Staff-related selling, general and administrative expenses | $ | 0.3 | 0.3 | ||||||||||||||||||||||
| Cost of Group Restructure (2) | Other selling, general and administrative expenses | $ | 0.2 | 0.2 | ||||||||||||||||||||||
| Cost of Group Restatement (3) | Other selling, general and administrative expenses | $ | 5.0 | 5.0 | ||||||||||||||||||||||
| Stock-based compensation expense (4) | Stock-based compensation expense | $ | 2.3 | 0.2 | 0.1 | 0.1 | 0.1 | 1.8 | ||||||||||||||||||
| Depreciation and amortization (4) | Depreciation and amortization | $ | 9.8 | 4.2 | 0.9 | 1.2 | 3.0 | 0.5 | ||||||||||||||||||
| Interest expense net (4) | Interest expense net | $ | 6.5 | 6.5 | ||||||||||||||||||||||
| Other finance expenses / (income) (4) | Other finance expenses / (income) | $ | (0.1 | ) | (0.1 | ) | ||||||||||||||||||||
| Income tax (4) | Income tax | $ | (2.1 | ) | (2.1 | ) | ||||||||||||||||||||
| Adjusted EBITDA | $ | 15.5 | $ | 6.5 | $ | 10.4 | $ | 4.4 | $ | 1.8 | $ | (7.6 | ) | |||||||||||||
| Adjusted EBITDA | £ | 12.3 | £ | 5.3 | £ | 8.1 | £ | 3.4 | £ | 1.5 | £ | (6.0 | ) | |||||||||||||
| Exchange Rate - $ to £ (5) | 1.27 | |||||||||||||||||||||||||
Note: Certain unallocated corporate function costs have not been allocated to the Company’s reportable operating segments because these costs are not allocable and to do so would not be practical; these are shown in the Corporate category.
Notes to Adjusted EBITDA reconciliation tables above:
| (1) | “Pension charges” are profit and loss charges included within selling, general and administrative expenses, relating to a defined benefit scheme which was closed to new entrants in 1999 and to future accrual in 2010. As well as the amortization of net loss, the figure also includes charges relating to the Pension Protection Fund (which were historically borne by the pension scheme) and a small amount of associated professional services expenses. These costs are included within Corporate Functions. |
| (2) | “Cost of Group Restructure” include redundancy costs, payment in lieu of notice costs and any associated employer taxes. To qualify as an adjusting item, costs must be part of a large restructuring project, which will net save ongoing future costs or be in relation to the exit of an Executive. |
| (3) | “Cost of Group Restatement” includes accounting advice and other related costs associated with the restatement of financial statements. It also includes costs relating to the SEC inquiry that was subsequently concluded in January 2025. To qualify as an adjusting item, costs must be specific to the event and be neither normal nor recurring in nature. |
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| (4) | Stock-based compensation expense, Depreciation and amortization, Total other expense, net and Income tax are as described above in the Results of Operations line item discussions. Total expense, net includes interest income, interest expense, change in fair value of earnout liability, change in fair value of derivative liability and other finance income. |
| (5) | Exchange rate in the table is calculated by dividing the USD Adjusted EBITDA by the GBP Adjusted EBITDA, therefore this could be slightly different from the average rate during the period depending on timing of transactions. |
Liquidity and Capital Resources
Three Months Ended March 31, 2025, compared to Three Months Ended March 31, 2024
Cash Flow Summary - A Two Year Comparative
| Three-Months Ended | Variance | |||||||||||
| (in millions) | Mar 31, | Mar 31, | ||||||||||
| 2025 | 2024 | 2025 to 2024 | ||||||||||
| Net loss | $ | (0.1 | ) | $ | (6.4 | ) | $ | 6.3 | ||||
| Non-cash interest expense relating to senior debt | 0.5 | 0.2 | 0.3 | |||||||||
| Change in fair value of derivative liabilities and stock-based compensation expense | 1.4 | 2.3 | (0.9 | ) | ||||||||
| Deferred income taxes | (1.9 | ) | - | (1.9 | ) | |||||||
| Depreciation and amortization (incl RoU assets) | 11.4 | 10.9 | 0.5 | |||||||||
| Other net cash generated/(utilized) by operating activities | 14.2 | (1.0 | ) | 15.2 | ||||||||
| Net cash inflow provided by operating activities | 25.5 | 6.0 | 19.5 | |||||||||
| Net cash used in investing activities | (15.1 | ) | (10.1 | ) | (5.0 | ) | ||||||
| Net cash used by financing activities | (1.7 | ) | (0.2 | ) | (1.5 | ) | ||||||
| Effect of exchange rates on cash | 1.0 | ) | (0.4 | ) | 1.4 | |||||||
| Net increase/(decrease) in cash and cash equivalents | $ | 9.7 | $ | (4.7 | ) | $ | 14.4 | |||||
Net cash provided by operating activities
For the three-month period ended March 31, 2025, net cash inflow provided by operating activities was $25.5 million, compared to a $6.0 million inflow for the three-month period ended March 31, 2024, representing a $19.5 million increase in cash generation. The increase was driven primarily through improved working capital position with favorable movements in accounts receivable due to the collection in the three-month period ended March 31, 2025 of a number of the machine hardware sales made at the end of 2024 and favorable movements in accounts payable due to timing of payments and varying levels of production activity.
Non-cash interest expense increased by $0.3 million, to $0.5 million, due to the marking to market for short term currency contracts held as of March 31, 2025.
Change in the fair value of derivative liabilities and stock-based compensation expense decreased by $0.9 million from $2.3 million to $1.4 million due to lower stock-based compensation expense.
Depreciation and amortization increased by $0.5 million, to $11.4 million, with increases of $1.1 million in machine depreciation, $0.4 million in amortization of intangible assets and $0.3 million in contract costs amortization. These were offset by a $1.1 million decrease in software development cost amortization and a $0.3 million decrease in right of use asset amortization.
Other net cash generated by operating activities increased by $15.2 million to an inflow of $14.2 million. The relative movements between the three-month period ended March 31, 2025 and the three-month period ended March 31, 2024 resulted in favorable movements of $13.5 million in accounts receivable and $16.8 million in accounts payable and accrued expenses. The favorable movements in accounts receivable was largely due to the collection of receipts from hardware sales made at the end of 2024 and the favorable movements in accounts payable and accrued expenses was largely due to timing of procurement activity and on supplier payments with the prior year including a number of payments for professional fees relating to the restatement exercise. These favorable movements were partly offset by unfavorable movements in prepayments and accrued income of $6.7 million, inventory of $2.4 million and corporate tax and other current taxes of $5.0 million.
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Net cash used in investing activities
Net cash utilized in investing activities increased by $5.0 million, to $15.1 million in the three-month period ended March 31, 2025. This was driven by a higher expenditure on plant, property and equipment ($4.9 million increase compared to 2024) and on contract cost additions ($1.4 million increase compared to 2024). These were partly offset by a $1.2 million decrease in capitalized software.
Net cash used by financing activities
During the three-month period ended March 31, 2025, net cash used by financing activities was $1.7 million, $1.5 million higher than the three-month period ended March 31, 2024 related to finance lease expenditure.
Funding Needs and Sources
To fund our obligations, historically we have relied on a combination of cash flows provided by operations and the incurrence of additional debt or the refinancing of existing debt. As of March 31, 2025, we had liquidity consisting of $39.0 million in cash and a further $6.5 million of undrawn revolver facility. This compares to $35.3 million of cash as of March 31, 2024, with a further $6.3 million of revolver facilities undrawn. We had a working capital inflow of $14.2 million for the three-month period ended March 31, 2025, compared to a $1.0 million outflow for the three-month period ended March 31, 2024.
The level of our working capital surplus or deficit varies with the level of machine production we are undertaking and our capitalization as well as the seasonality experienced in some of the businesses. In periods with minimal machine volumes and capital spend, our working capital is typically more stable. In periods where significant numbers of machines are being produced, the levels of inventory and creditors are typically higher and there is a natural timing difference between converting the stock into sellable or capitalized plant and settling payments to suppliers. These factors can result in significant working capital volatility. In periods of low activity, our working capital volatility is reduced. Working capital is reviewed and managed with the aim of ensuring that current liabilities are covered by the level of cash held and the expected level of short-term receipts.
Some of our business operations require cash to be held within the machines. As of March 31, 2025, $6.1 million of our $39.0 million of cash were held as operational floats within the machines. At March 31, 2024, $6.1 million of our $35.3 million of cash were held as operational floats within the machines
Management currently believes that the Company’s cash balances on hand, cash flows expected to be generated from operations, and the ability to control and defer capital projects will be sufficient to fund the Company’s net cash requirements through May 2026.
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Long Term and Other Debt
| (In millions) | March 31, 2025 | March 31, 2024 | ||||||||||||||
| Cash held | £ | 30.2 | $ | 39.0 | £ | 28.0 | $ | 35.3 | ||||||||
| Revolver drawn | (15.0 | ) | (19.4 | ) | (15.0 | ) | (18.9 | ) | ||||||||
| Original principal senior debt | (235.0 | ) | (303.4 | ) | (235.0 | ) | (296.9 | ) | ||||||||
| Cash interest accrued | (6.8 | ) | (8.8 | ) | (6.6 | ) | (8.4 | ) | ||||||||
| Finance lease creditors | (18.1 | ) | (23.4 | ) | (2.7 | ) | (3.4 | ) | ||||||||
| Total | £ | (244.7 | ) | $ | (316.0 | ) | £ | (231.4 | ) | $ | (292.3 | ) | ||||
Debt Covenants
Under our debt facilities in place as of March 31, 2025, we are not subject to covenant testing on the Senior Secured Notes. We are, however, subject to covenant testing at the level of Inspired Entertainment Inc., the ultimate holding company, on our Super Senior Revolving Credit Facility which requires the Company to maintain a maximum consolidated senior secured net leverage ratio of 6.25x on the test date for the relevant period ended June 30, 2021, stepping down to 6.0x on March 31, 2022, 5.75x on March 31, 2023 and 5.50x from March 31, 2024 and thereafter (the “RCF Financial Covenant”). The RCF Financial Covenant is calculated as the ratio of consolidated senior secured net debt to consolidated pro forma EBITDA (defined as net loss excluding depreciation and amortization, interest expense, interest income and income tax expense) for the 12-month period preceding the relevant quarterly testing date and is tested quarterly on a rolling basis, subject to the Initial Facility (as defined in the RCF Agreement) being drawn on the relevant test date. The RCF Financial Covenant does not include a minimum interest coverage ratio or other financial covenants. Covenant testing at March 31, 2025 showed covenant compliance.
There were no breaches of the debt covenants in the three-month period ended March 31, 2025 or March 31, 2024.
Liens and Encumbrances
As of March 31, 2025, our senior secured notes were secured by the imposition of a fixed and floating charge in favor of the lender over all the assets of the Company and certain of the Company’s subsidiaries.
Share Repurchases
The Board of Directors has authorized the Company to use up to $25.0 million to repurchase shares of Inspired common stock, subject to repurchases being effected on or before May 10, 2025. Management has discretion as to whether to repurchase shares of the Company and as of March 31, 2025, an aggregate of $12.0 million of our shares of common stock had been repurchased. No shares have been repurchased after September 2023.
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Contractual Obligations
As of March 31, 2025, our contractual obligations were as follows:
| Contractual Obligations (in millions) | Total | Less than 1 year | 1-2 years | 3-5 years | More than 5 years | |||||||||||||||
| Operating activities | ||||||||||||||||||||
| Interest on long term debt | $ | 35.8 | $ | 23.9 | $ | 11.9 | $ | - | $ | - | ||||||||||
| Purchase of Vantage machines | 8.8 | 8.8 | - | - | - | |||||||||||||||
| Financing activities | ||||||||||||||||||||
| Revolver repayment | 20.3 | 20.3 | - | - | - | |||||||||||||||
| Senior secured notes - principal repayment | 303.4 | - | 303.4 | - | - | |||||||||||||||
| Finance lease payments | 23.4 | 4.9 | 4.8 | 13.7 | - | |||||||||||||||
| Operating lease payments | 16.2 | 5.0 | 3.7 | 4.2 | 3.3 | |||||||||||||||
| Interest on non-utilization fees | 0.1 | 0.1 | - | - | - | |||||||||||||||
| Total | $ | 408.0 | $ | 63.0 | $ | 323.8 | $ | 17.9 | $ | 3.3 | ||||||||||
Off-Balance Sheet Arrangements
As of March 31, 2025, there were no off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K, promulgated by the U.S. Securities and Exchange Commission.
Critical Accounting Estimates
The preparation of our audited consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions. We exercise considerable judgment with respect to establishing sound accounting policies and in making estimates and assumptions that affect the reported amounts of our assets and liabilities, our recognition of revenue and expenses, and our disclosure of commitments and contingencies at the date of the consolidated financial statements. On an on-going basis, we evaluate our estimates and judgments. We base our estimates and judgments on a variety of factors, including our historical experience, knowledge of our business and industry and current and expected economic conditions, that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We periodically re-evaluate our estimates and assumptions with respect to these judgments and modify our approach when circumstances indicate that modifications are necessary. While we believe that the factors we evaluate provide us with a meaningful basis for establishing and applying sound accounting policies, we cannot guarantee that the results will always be accurate. Since the determination of these estimates requires the exercise of judgment, actual results could differ from such estimates.
A description of our critical accounting estimates was provided in item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2024. There were no changes in the determination of these estimates during the first three months of 2025.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our principal market risks are our exposure to changes in foreign currency exchange rates.
Interest Rate Risk
Following the Company’s refinancing of its debt in May 2021, the external borrowings of £235.0 million ($303.4 million) are provided at a fixed rate. Therefore, movements in rates such as LIBOR do not impact on the current borrowings and the only fluctuation that is expected to be reported will be that solely caused by movements in the exchange rates between the Company’s functional currency and its reporting currency.
Foreign Currency Exchange Rate Risk
Our operations are conducted in various countries around the world, and we receive revenue and pay expenses from these operations in a number of different currencies. As such, our earnings are subject to movements in foreign currency exchange rates when transactions are denominated in (i) currencies other than GBP, which is our functional currency, or (ii) the functional currencies of our subsidiaries, which is not necessarily GBP. To estimate our foreign currency exchange rate risk, we identify material Euro and USD trading and balance sheet amounts and recalculate the result using a 10% movement in the GBP:USD exchange rate. For the trading figures the 10% movement is based on the average exchange rate throughout the reported period and for the balance sheet figures the 10% movement is based on the exchange rate used at March 31, 2025.
Excluding intercompany balances, our Euro functional currency net assets total approximately $23.4 million, and our USD functional currency net assets total approximately $9.0 million. We use a sensitivity analysis model to measure the impact of a 10% adverse movement of foreign currency exchange rates against the USD. A hypothetical 10% adverse change in the value of the Euro and the USD relative to GBP as of March 31, 2025, would result in translation adjustments of approximately $2.2 million favorable and $0.9 million favorable, respectively, recorded in other comprehensive income.
Included within our trading results are earnings outside of our functional currency. Retained gains from Euro based entities earned in Euros and retained losses from USD based entities earned in USD in the three-month period ended March 31, 2025, were €3.9 million and $4.8 million, respectively. A hypothetical 10% adverse change in the value of the Euro and the USD relative to GBP as of March 31, 2025, would result in translation adjustments of approximately $0.4 million favorable and $0.4 million unfavorable, respectively, recorded in trading operations.
The majority of the Company’s trading is in GBP, the functional currency, although the reporting currency of the Company is the USD. As such, changes in the GBP:USD exchange rate have an effect on the Company’s results. A 10% weakening of GBP against the USD would not impact the trading operational results and would result in unfavorable translation adjustments of approximately $3.6 million, recorded in other comprehensive income.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our Certifying Officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.
Under the supervision and with the participation of our management, including our principal executive officer and our principal financial officer (together, the “Certifying Officers”), we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on the foregoing, our Certifying Officers concluded that our disclosure controls and procedures were not effective at the reasonable assurance level as of March 31, 2025, due to the material weaknesses described in Item 9A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2024, filed with the SEC on March 26, 2025. Management is redesigning and implementing existing and additional controls to remediate these material weaknesses.
Notwithstanding the identified material weaknesses and management’s assessment that our disclosure controls and procedures were not effective at the reasonable assurance level as of March 31, 2025, management believes that the interim consolidated financial statements and footnote disclosures included in this Quarterly Report on Form 10-Q fairly present, in all material respects, our financial condition, results of operations, cash flows and disclosures as of and for the periods presented in accordance with generally accepted accounting principles.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Securities Matters Arising From the Company’s Restated Financial Statements and Related Matters
On March 12, 2024, the Company received a subpoena from the SEC seeking documents concerning, among other things, the Company’s recently restated financial statements. The Company cooperated with the SEC’s inquiry. On January 28, 2025, the SEC staff notified the Company that it had concluded its investigation as to the Company and did not intend to recommend an enforcement action.
From time to time, the Company is involved in legal matters arising in the ordinary course of business. While the Company believes that such matters in which it is currently involved are not material, there can be no assurance that such matters, or other legal matters, will not have a material adverse effect on its business, financial condition or results of operations.
ITEM 1A. RISK FACTORS
Our business is subject to a high degree of risk. You should carefully consider the risk factors discussed in Part I, Item 1A of our Annual Report on Form 10-K for our fiscal year ended December 31, 2024, filed with the SEC on March 26, 2025. Any of these risks could materially and adversely affect our business, operating results, financial condition and prospects, and cause the value of our common stock to decline, which could cause investors in our common stock to lose all or part of their investments.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q:
| # | Indicates management contract or compensatory plan. |
| * | Filed herewith. |
| ** | Furnished herewith. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| INSPIRED ENTERTAINMENT, INC. | ||
| Date: May 8, 2025 | /s/ A. Lorne Weil | |
| Name: | A. Lorne Weil | |
| Title: | Executive Chairman | |
| (Principal Executive Officer) | ||
| Date: May 8, 2025 | /s/ James Richardson | |
| Name: | James Richardson | |
| Title: | Chief Financial Officer | |
| (Principal Financial and Accounting Officer) | ||
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